As we move into the new year, Covid 19 & it’s variant Omicron continue to dominate events. The last 12 months has underlined just how important a role community pharmacy has in all parts of the United Kingdom in the battle against the virus and helping restore some normality to our lives.
The pharmacy sector’s remarkable appetite to support and assist colleagues in the NHS has been admirable, particularly in the face of wide-ranging challenges and every day pressures endured by pharmacists and their teams. As the pandemic has persisted, pharmacy has unfairly endured the brunt of many patient’s frustrations and other factors such as staff illness due to covid, increased business costs and pharmacist shortages continue to add to already difficult working conditions.
Nonetheless our pharmacy sector continues to perform stoically, not just in the successful delivery of covid and flu vaccinations, but also ever more importantly in the wider provision of healthcare to local communities.
Author; Paul Steet
Senior Pharmacy Consultant, Hutchings Consultants
The pharmacy market in 2021 was a tale of two halves as due to a combination of heavy workload pressures, a desire to support their colleagues and a welcome uplift in income for many, we saw a slow start in the number of pharmacies coming onto the market for sale in the first six months. In comparison, we experienced a 29.4% increase in pharmacy instructions in the latter half of the year as many owners finally found some breathing space to consider their plans and contemplate a sale once more.
Contrary to recent years there was a notable increase in the proportion of higher turnover, more profitable pharmacies sold as many of the larger groups and multiples had completed their consolidation plans for the time-being, leading to a reduction in smaller, less profitable pharmacies entering the market. Large group sales dominated some of the media headlines as well funded buyers instigated expansion plans such as the sale of Lloyds Pharmacies to asset management group Aurelius & Avicenna’s acquisition of both Shepherds Group (34 branches) and the larger Dudley Taylor Group (57 branches) located across England and Wales.
Having experienced a near doubling in buyer registrations in 2020, last year saw a return to similar numbers previously recorded in 2019. Of the overall registrations in 2021, 77% were first time buyers which was an increase of 2% on the previous year, demonstrating the continuing fervent desire for many to acquire their own pharmacy business. The second largest group of buyers were existing owners at around 15%, eager to explore suitable opportunities to increase their portfolios and we also saw an increase of 1% in the number of investor registrations. Some of the multiples gradually demonstrated an increased desire to acquire once more having previously suspended activity for a period whilst consolidation plans were implemented.
Over recent years the influx of smaller turnover pharmacies entering the market created additional opportunities for first time buyers to acquire and contributed to an increase in the average number of offers received per sale. Despite a fall in the number of these pharmacies sold in 2021 a combination of more desirable pharmacy stock and strong buying activity helped to sustain levels.
Having come under pressure in recent years, the average Pence in Pound value achieved increased, mainly due to improved buyer demand and appeal of those pharmacies entering the market. Sale values in England and Wales achieved similar figures to the national average, but Scotland continued to significantly outperform other home nations with an average price achieved of around £2 per £1 of turnover.
In recent years Gross Profit % margins have stabilised however it was encouraging to see an increase to 32.3% in 2021, as some owners sought to maintain or improve their profitability partly by concentrating more heavily on their purchases from suppliers. The increase in margin and profitability was reflected in higher values achieved at point of sale. This is an encouraging development in a key business performance indicator and bodes well for those considering selling over the coming year.
EBITDA (Earnings before Interest, tax, depreciation and amortisation) is the most crucial figure in assessing the goodwill value of any pharmacy. Following a wave of sales in 2019 & early 2020 which had a higher proportion of smaller turnover pharmacies, many of which were loss making or barely profitable, buyers often reverted to making an offer based on ‘Pence in Pound’ methodology which had the effect of increasing the average EBITDA multiple. This year a higher percentage of more profitable pharmacies have been sold, reducing the average multiple statistic as buyers shift their valuation weighting back toward EBITDA from Pence in the Pound.’
With the advent of the new variant, the pandemic is set to continue for the foreseeable future and pharmacy is expected to be at the forefront of supporting the delivery of healthcare across the UK. The sector has incrementally been called upon to support hard pressed GPs and other parts of the Primary Care Network which we hope will lead to a greater call to provide more seamless integrated care moving forwards. In the eyes of the community it serves, the need for an appropriately funded pharmacy sector has never been greater. It is hoped this will be reflected in PSNC’s forthcoming Year 4 CPCF funding negotiations in England, which perhaps enjoys less perceived support from Government compared to fellow contractors in Scotland and Wales.
As an example, Community Pharmacy in Wales has recently announced a newly reformed Welsh Pharmacy CPCF designed to incentivise and reward pharmacies undertaking more of the services required to alleviate pressures elsewhere in Primary Care. This has been boosted by the announcement of an additional 2.5m of funding for community pharmacies to help improve patients access to treatment.
In the immediate short term, a nationwide shortage of pharmacists has created a significant increase in rates of pay and is imposing both operational and cost pressures on contractors. These workplace pressures are set to continue with displaced GP patients creating additional walk in & phone call demands. How hard-pressed contractors will optimize the increased opportunities may greatly depend on the level of staffing available to service requirements. Owing to these short and long-term challenges it is very difficult to forecast the market over the coming year however we do anticipate an overall increase in pharmacy instructions compared to last year as sellers who delayed their plans due to the pandemic may wish to take advantage of their improved financial position and implement their exit strategies. The low supply of pharmacies for sale in Scotland is expected to continue whilst in Wales a move towards Independent Prescriber led services may lead some contractors to decide it is more prudent to sell and allow a qualified new owner to make the necessary adjustments to the business.
Bank support for pharmacy acquisitions remains positive with fairly stable lending rates overall. There are several new banks seeking to enter the pharmacy market which should increase competition for existing lenders and create more choice for those seeking funding.
With buyer confidence expected to remain high and banks continued desire to lend to the pharmacy sector, we anticipate that prices should remain stable over the forthcoming year although they may come under slight pressure should there be an unexpected influx of pharmacies entering the market. Those contractors considering selling over the next 12 months are advised to consult Hutchings Consultants as early as possible in order to plan ahead for a successful sale.
Our unique service allows you to market and sell your pharmacy without paying any agency, accountancy or legal fees until your sale has completed. Never before have pharmacy industry experts teamed up to provide a 360°degree service for the sale of your pharmacy, all on a no sale no fee basis.
This scheme removes all of the risk from you when approaching the market and provides total clarity as to the fees you will pay on successful completion, before you start. If for any reason your pharmacy does not sell, you will not be liable to any agent’s, accountant’s, or solicitor’s fees. Furthermore, utilising our in-house expertise, and that of our pharmacy specialist legal partners Clarke Mairs LLP and accounting partner Hutchings Accountants, we will ensure your pharmacy is in the best possible shape to achieve the maximum market value, while simultaneously mitigating almost every foreseeable hold up, reducing your stress levels and letting you focus on running your business.